Part 1 - AL-Tax

administration, whereas in an APA the facts are likely to be thoroughly analyzed andinvestigated. In addition, an APA usually covers several transactions, several typesof transactions on a continuing basis, or all of a taxpayer’s international transactionsfor a given period of time. In contrast, a private ruling request usually is binding onlyfor a particular transaction.’(OECD, 2001b, Paragraph 4.133)Chapter 6Advance ruling systems and, in particular, APA programs are increasing in numberand are now deployed by many states, particularly OECD member states.However, such states differ in the timing, type, and scope of APAs used for resolvingtransfer pricing issues. Early forerunners include the USA, Canada, the Netherlands,the UK, France, and Japan. China, Korea, and Mexico, among others, are followingsuch examples.The most comprehensive study on transfer pricing is the Ernst & Young GlobalTransfer Pricing Study, which has been published every second year since 1995. Thelatest available edition is the 2005 Survey (Ernst & Young, 2005). The survey of 2003(Ernst & Young, 2003) contains information about APAs on over 800 MNC entries, ofwhich 14% of parent companies and 18% of subsidiaries used the APA process toseek a higher level of transfer pricing certainty (p. 23). Of the companies which usedAPA processes – almost 90% (87% of parents, 89% of subsidiaries) – indicated thatthey would use the APA process again.The survey also states (Ernst & Young, 2003, p. 23) that:‘[N]onetheless, if tax administrations want their APA programs to attract taxpayers,they must still overcome the perception that they are not “user friendly”. Thetrend among non-APA using parents to consider use of APAs in the future continuedto decline in this survey. Only 33% of parents responded favorably in 2003,down from 38% in 2001 and 45% in 1999. However, this year we find that non-APA using subsidiaries indicate increasing openness to future use of APAs – 47%this year, compared to 34% in 2001 and 41% in 1999.In general, the preliminary approval of a certain transaction is appropriate in caseswhere such transactions are rare and would need complex statutory provisions.APAs normally refer to such special cases, namely complex related-party transactionsof multinationals for which standard transfer pricing techniques may not applyor might be viewed differently by the parties involved (for example, taxpayers and taxadministrations of the countries involved).In countries that apply the OECD Model Tax Convention and the OECD TransferPricing Guidelines, the APA process is designed to produce a formal agreement119